Obama Bank Plan Uncertainty Weighs On Markets

European and U.S. stock markets fell sharply for the second day running Thursday amid ongoing fears about tighter monetary policy in China and uncertainty over President Barack Obama's plans to rein in risky bank activities.

The euro, meanwhile, continued to slide after poor economic data and concerns about Greece's debt burden.

In Europe, the FTSE 100 index of leading British shares closed down 85.70 points, or 1.6 percent, at 5,335.10 while Germany's DAX fell 104.56 points, or 1.8 percent, at 5,746.97. The CAC-40 in France ended 66.79 points, or 1.7 percent, lower at 3,862.16.

The falls come on top of Wednesday's big declines when stocks around the world took a battering amid fears of further lending curbs in China and mixed U.S. corporate earnings.

Those concerns have not gone away.

In fact, investors now have a new thing to worry about — what is the U.S. President planning to do to rein in excessive risk-taking at big financial firms?

"A significant worry seems to be the steps that President Obama is going to propose to curb risk-taking by various financial institutions," said David Jones, chief market strategist at IG Index.

"It looks like this nervous air will persist until there is more clarity on exactly what sort of limits are going to imposed on banks' trading activities," he said.

The uncertainty has more than offset the positive air emanating from forecast-busting fourth-quarter earnings from Goldman Sachs Group Inc. Though Goldman Sachs reported earnings per share 3 cents higher than expected at $8.20, its share price has been marked down over 2 percent.

Sentiment has been further dented Thursday by the news that the number of people in the U.S. filing for unemployment benefits for the first time rose by 36,000 last week to 482,000. The consensus in the markets was for a modest decline.

Investors are increasingly concerned that stock market valuations following a ten-month bull run are not justified by current economic and corporate news coming out of the U.S. in particular.

They are also worrying that China will start to tighten policy to keep a lid on inflationary pressures arising a sharp pick-up in economic growth. Figures earlier showed that China's economy grew 10.7 percent in the fourth quarter from the year before and 8.7 percent for all of 2009 — at the top end of market expectations.

"China gets a touch of overheat — markets across the rest of the world shudder," said Howard Wheeldon, senior strategist at BGC Partners.

"That is the way of things today in a global economy controlled as much in the East as it is in the West," he added.

While China may look at ways of cooling things down, policymakers in Europe are grappling with a debt crisis in Greece at a time when the economic newsflow suggests that the soft recovery could be slowing down.

That is a toxic brew for the euro, which fell to another five-month low against the dollar of $1.4028.

"While Greece remains the source of most pressure on the eurozone, disappointing data provides further evidence that the pace of the recovery could be moderating," said Jane Foley, research director at Forex.com.

European and U.S. stock markets fell sharply for the second day running Thursday amid ongoing fears about tighter monetary policy in China and uncertainty over President Barack Obama's plans to rein in risky bank activities.The euro, meanwhile, continued to slide after poor...